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Can ViaSat (VSAT) Keep Earnings Streak Alive in Q4 Earnings?

Zacks

ViaSat, Inc. VSAT is slated to report fourth-quarter fiscal 2017 results on May 23, after the closing bell.

In the last reported quarter, the company beat estimates, scoring a positive earnings surprise of 100.0%. ViaSat has a whopping average positive surprise of 323.6% for the trailing four quarters, led by two massive back-to-back beats over the same time frame.

Let's see how things are shaping up for this announcement.

Factors to Consider


Over the past few quarters, most of ViaSat’s top-line growth came on the back of robust performance of its Government Systems and Satellite Services segments. Increasing adoption of satellite networking, data links and encryption product-based businesses and government mobility-service offerings are anticipated to drive growth of Government Systems business for the soon-to-be-reported quarter.

In addition, the Satellite Services business, which has been benefiting from growing adoption of in-flight Wi-Fi services in commercial aircrafts, is expected to boost the fiscal fourth-quarter top line. Of late, all key metrics of this business, namely ARPU (Average revenue/user), revenue, margins and adjusted EBITDA, have been on an uptrend. This is because leading airline companies like The Boeing Company BA are scouting for new ways to utilize high-capacity satellite solutions to maximize passenger satisfaction.

Growing demand from the company’s blue-chip customer base — comprising the U.S. Department of Defence, civil agencies, allied foreign governments and satellite network integrators — is anticipated to boost sales for the to-be-reported quarter. We also believe that the collaboration with Eutelsat, which has helped the company expand its customer base, will supplement quarterly results.

Despite these positives, escalating research and development (R&D) costs pose as concerns for the company. During the fiscal third quarter, the company witnessed a 79.6% rise in the R&D expenses year over year, dampening earnings growth. In addition, escalating R&D expenses in the Commercial Networks segment, in relation to the ViaSat-2 launch, are likely to exert significant pressure on EBITDA.

Further, the company’s satellite services segment is highly affected by seasonality of demand due to traditional retail selling periods. Additionally, stringent competition and “fixed-priced” nature of the contracts are likely to pose as headwinds. Stiff competition may lead to price reductions and reduced margins, thus impacting fiscal fourth-quarter's profitability.

Earnings Whispers

Our proven model does not conclusively show that ViaSat will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate currently are pegged at 1 cent. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ViaSat, Inc. Price and EPS Surprise

ViaSat, Inc. Price and EPS Surprise | ViaSat, Inc. Quote

Zacks Rank: ViaSat has a Zacks Rank #3. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Best Buy Co., Inc. BBY has an Earnings ESP of +10% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fred’s Inc. FRED has an Earnings ESP of +16.67% and carries a Zacks Rank #3.

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